Finance in Japan and Korea

How can we benefit from learning more about how finance works in Asian markets such as Japan and Korea?

Both Korea and Japan have experienced periods of boom and bust. Both enjoyed a burst of growth initiated by their shift from agriculture to high-tech economies, which drew envious glances from the West. But each has faced their own problems with slumps and poor growth, and how Japan deals with its ageing workforce will be an interesting lesson to economists in the UK and beyond.

Japan – Recovering from “The Lost Decade”

In some economic circles it is joked that “Japan is the front-runner for every economic problem”.

The world’s third largest economy by nominal GDP has the largest consumer electronics industry and is the third biggest country for automobile manufacturing. However, it is currently battling issues that aren’t entirely unfamiliar to other global nations.

In 2010, Japan’s population peaked at around 128 million. By the end of the century, it is projected to slip to 80 million, with the average Japanese family comprising 1.46 children, compared to the 2.1 required for growth. On the flip side, over-60s make up almost a third of the population.

Japan enjoyed strong growth up until its asset price bubble burst at the start of the 1990s, and what is referred to as its “Lost Decade” began. This period has now been extended to include the years up to 2010: the “Lost Score”.

The biggest challenge for recent Japanese governments has been returning the economy to growth.

Since 1995, the Bank of Japan’s interest rate has not moved over 0.5%, yet consumers and businesses have still been reluctant to spend.

Prime Minister Shinzō Abe has embarked on a three-pronged initiative to kick-start the economy, relying on monetary stimulus, flexible fiscal policy and structural reform. The plan – known globally as Abenomics – seems to have made progress in tackling Japan’s deflation problems, but wages remain flat, and that’s not encouraging businesses or citizens to relax their grip on their cash and start spending. Could other world nations learn any lessons from Abenomics? And if so, what might they be?

Korea – Home of the “miracle”

After splitting into two territories after World War Two, North and South Korea maintained relatively similar GDP per capita for a couple of decades. However, North Korea’s industrial growth started to skid to a halt, while South Korea’s shift from agriculture to tech brought about “the miracle on the Han River” – an economic surge that pushed it from $2.7bn real GDP in 1962 to $230bn in 1989.

It remains the world’s 11th largest economy, but – like many world economies – it has had to bounce back from disaster. The Asian Financial Crisis saw several countries face painful currency devaluations, starting with Thailand in 1997. With several major South Korean “chaebols” – or conglomerates – taking on loans to finance massive expansion, many were vulnerable to trouble when the crisis hit.

The International Monetary Fund provided a $57bn bailout. The South Korean government began a process of financial sector reform, and moved to a more market-focused investment model. It is still one of the fastest growing developed countries in the world, and its focus on exports of electronics, shipping and steel puts it among the countries that are well placed to make a larger global impact in the 21st century.

Students on the course will emerge with a thorough understanding of the financial systems in Japan and Korea, including their banking systems, stock markets, exchange rates and monetary policy. This knowledge will prepare graduates for careers in business, banking and other vocational opportunities in these countries, and will also give them a strong sense of how these economies relate to – and differ from – other world players.